Exxon: capital discipline in an unloved sector
Energy has been under-owned all year, Exxon has kept capital spending flat while production rose, and the stock just broke out of a two-month range on volume. A sector-rotation idea with a company-specific reason to prefer this name.
Sample research report used to test the layout. Delete before launch.
Thesis
The whole sector is cheap, but most of it is cheap for a reason: production growth has been bought with capital spending that never earns its cost. Exxon has held spending flat for three years while production grew, which means free cash flow rises even at a flat oil price. If the sector catches a bid, this is the name that should lead it.
Catalysts
- The rotation out of technology that started this month, if it continues.
- Quarterly free cash flow, which the market has not fully noticed.
- Buyback pace at these prices.
Risks
- Oil. A sharp move lower in crude overwhelms everything else.
- The rotation reversing as quickly as it started; failed breakouts in hated sectors are sharp.
What would prove me wrong
A close back inside the range within a couple of weeks, or a cut to the buyback. Either says the market or the company disagrees with me.
Position
Starting a position on the breakout with a stop under the range high. Adding on a successful retest.